Direct marketing
In addition to working with schools, lenders try to reach students directly. Although some companies have failed in the credit crunch, dozens remain in business, sending e-mails to students and advertising on sites such as YouTube.
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Students learn too late the costs of private loans
High rates and fees often aren't disclosed upfront
HOOKED ON DEBT / One in a series of occasional stories
For The Record
Los Angeles Times Tuesday, January 20, 2009 Home Edition Main News Part A Page 2 National Desk 2 inches; 72 words Type of Material: Correction
College loans: A Dec. 27 article in Section A about the costs of college loans said lawyer Marja Lopees spends about 40% of what she makes to pay off her student loans, including $88,303 she accrued in private loans. Lopees said her debt burden has lessened since she was interviewed and she no longer spends 40% of her income on her debt, but she declined to provide current income or debt figures.
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Loan-shopping websites also lure young people into private loans, said Nancy Coolidge, a financial aid executive with the UC Board of Regents.
She noted that one site -- TuitionBids.com -- encouraged students to seek federal loans first but also had a "let the bidding begin" button that directed users to an application for a private loan.
"The way the site is set up encourages misunderstanding," Coolidge said. "They do what we ask by saying that private loans should be a last resort, but then ask, 'Are you interested?' When the kid clicks yes, they're catapulted to a private loan."
Keith Alliotts, chief executive of TuitionBids.com, counters that customers are able to choose either a private or a federally guaranteed loan.
"We don't advocate just private loans, we tell borrowers to get federal money first," he said. "But a lot of people need private loans."
But Alliotts acknowledged that TuitionBids.com receives a loan fee when a customer secures a private loan. The website makes nothing when consumers get a federally guaranteed loan.
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Federal loan limits
Marja Lopees of Burbank is a few years out of school and makes about $70,000 a year as a lawyer. But she racked up $196,253 in debt and says her student loan payments swallow 40% of her earnings.
Lopees turned to private loans when she hit borrowing limits imposed by the federal student loan program. Now she has $88,303 in private loans that charge an interest rate of 8.84%. The payment on that loan is her second-largest monthly expense, after rent.
"I'm making interest-only payments on one of the loans, and still the payments keep going up," she said. "It's just overwhelming."
When she just makes minimum payments, her debt and rent consume 60% of her after-tax income. That's before she pays for food, clothing, utilities, and gasoline or saves for long-term goals.
"No one tells you to be careful of taking on too much debt when you're in school," she said. "It's just the opposite. They just keep giving you loans and saying, 'Don't worry about it. You're going to be a lawyer. It's no big deal.' "
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Kristof is a freelance writer.
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Hooked on debt
One in a series of occasional stories about America's dependence on debt. The next article in the series will describe how local governments have loaded up on costly loans. To read previous installments, go to latimes.com/debt.
